Chapter 11R, Problem 6MCQ

To determine

The correct option for given situation where output level can be determine in order to seek maximum profit.

Answer to Problem 6MCQ

Option b- 6 bushels is correct answer.

Explanation of Solution

Explanation for correct options:

b.

As per the given data, the profit can be maximized when the marginal cost is equal to the market price. In this case, if market price is $22 then the output level should be 6 bushels at which the marginal cost is $20. Therefore, option b is correct.

Explanation for incorrect options:

a.

If an unit is increased then marginal cost will increase by $24 and firm will suffer losses of $2 per unit. Therefore, option a is incorrect.

c.

If the firm produces the output level at which marginal revenues are not equal to the marginal cost then it cannot maximize the profit. Therefore, option c is incorrect.

d.

Similarly, if 4 bushels are produced then also firm will not maximize its profit level. This is because producing low output level means high average total cost. Therefore, option d is incorrect.

e.

The output level of 3 bushels means lower profit. This is because firm can maximize its profit if its marginal cost is equivalent or near to its market price. Therefore, option e is incorrect.

Economics Concept Introduction

Average total cost: Average total cost of production per unit is comprised of two cost components that are average fixed cost and average variable cost. In short-run, fixed cost of the production remains similar.